Wednesday, June 9, 2010
The Tide is Shifting from China
First Foxconn, and now Honda have agreed to substantial increases in pay in their Chinese factories. By some estimates, the Foxconn labor cost increased by up to 65%. These increases are expected to spread to other factories and ripple through the Chinese industry.
There are two implications worth considering for supply chain professionals: One is that the purchasing power of Chinese consumers' will increase dramatically, making the Chinese market even more attractive. The other consideration is that the cost structure may now be such that many products are more profitably manufactured in a facility close to the consumers, as opposed to manufacturing everying by default in China. Of course, there are several other low cost countries that production can be shifted to. However, for companies now manufacturing in China, shifting production to another country can mean increased management, increased risk of supply chain interruptions, and increased travel expenses, time and hassles. It may be worth it. Or not. At least it warrants a thought and an analysis.